02592cam a22002537 4500001000600000003000500006005001700011008004100028100002100069245009900090260006600189490004100255500001700296520033800313520061000651520071701261530006101978538007202039538003602111710004202147830007602189856003702265856003602302w3416NBER20161209235944.0161209s1990 mau||||fs|||| 000 0 eng d1 aGordon, Roger H.10aCan Capital Income Taxes Survive in Open Economies?h[electronic resource] /cRoger H. Gordon. aCambridge, Mass.bNational Bureau of Economic Researchc1990.1 aNBER working paper seriesvno. w3416 aAugust 1990.3 aRecent theoretical work has argued that a small open economy should use residence-based but not source-based taxes on capital income. Given the ease with which residents can evade domestic taxes on foreign earnings from capital, however, a residence-based tax may not be administratively feasible, leaving no taxes on capital income.3 aThe objective of this paper is to explore possible reasons why capital income taxes have survived in the past, in spite of the above pressures. Any bilateral approach, such as sharing of information among governments or direct coordination of tax rates, suffers from the problem that the coalition of countries is itself a small open economy, so subject to the same pressures. Capital controls, preventing capital outflows, may well be a sensible policy response and were in fact used by a number of countries. Such controls have many drawbacks, however, and a number of countries are now abandoning them.3 aThe final hypothesis explored is that the tax-crediting conventions, used to prevent the double taxation of international capital flows, served also to coordinate tax rates. The paper shows that while no Nash equilibrium in tax rates exists, given these tax-crediting conventions, a Stackelberg equilibrium does exist if there is either a dominant capital exporter or a dominant capital importer, in spite of the ease of tax evasion. While the U.S. , as the dominant capital exporter during much of the postwar period, may well have served as this Stackelberg leader, world capital markets are now more complicated. These tax-crediting conventions may no longer be sufficient to sustain capital-income taxation. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w3416.4 uhttp://www.nber.org/papers/w341641uhttp://dx.doi.org/10.3386/w3416